In a shift that makes its model comparable to the person-to-person transfer services widely available online, the mobile phone payment company Obopay Inc. is letting people send money to and from any bank account rather than requiring them to maintain a separate, prepaid account.
Observers said the feature, announced Tuesday, makes Obopay's mobile phone transfer service more useful to the average consumer and puts it in more direct competition with online payment providers like PayPal Inc.
Irv Henderson, Obopay's vice president of product development, said some people had requested more options for delivering money.
"What we found from some users was they did not want to create another account" to receive money and did not want their friends to have to open an Obopay account just to receive transfers, Mr. Henderson said in an interview Tuesday.
Obopay's service, which went live in 2006, lets customers initiate transfers to one another through their phones. Mr. Henderson said Obopay hopes that expanded funding and receiving options will drive up use of the service among college students and families, which are some of its main target markets. Obopay also has a strong user base among the unbanked, though this effort is not aimed at that segment.
Citigroup Inc., which is working with Obopay to link the transfer service with its accounts, said Tuesday that the features it is developing would offer faster settlement than Obopay can offer now to accounts at other banks.
Users may still send and receive money through Obopay's prepaid accounts, and those transactions settle faster than payments to or from bank accounts. Funds moving between Obopay accounts settle in almost real time, but transfers to or from other financial companies move across the automated clearing house system and can take three to five days.
People can also initiate transfers from a credit card account, which costs the sender 2.5% of the transfer amount. Other transfers cost senders 10 cents, and recipients never pay a fee. Funds in Obopay's prepaid accounts can be accessed with debit cards.
However, Nick Holland, a senior analyst at Aite Group LLC of Boston, said that requiring users to park their funds in prepaid accounts likely deterred some users, especially those with bank accounts. People may have been reluctant to enroll in the service, and "if you already have an existing account, it's one more card in your wallet, one more step to go through," he said.
By connecting its service to any bank account, Obopay has become a more useful tool, he said. Instead of sending money to and from users' secondary accounts, "the bigger play is to be that conduit between banks."
Mr. Holland said Obopay, of Redwood City, Calif., has few rivals in the mobile phone transfer space now, but that might change. He noted that PayPal offers a service that enables customers to initiate transfers using text messages, but it does not seem to be one of the company's priorities. "My hunch would be they're somewhat disinterested, or alternatively, there are much bigger fish to catch" than mobile phone transfers.
One of PayPal's main attractions is that it can route payments to anyone with an e-mail account; Obopay's new model offers similar range by allowing people to send money to anyone with a phone.
PayPal "hasn't done anything to actually increase" use of its mobile phone service, Mr. Holland said, but he said the online payments company could be monitoring Obopay's progress in creating demand for mobile phone transfers. "Maybe they're just waiting for the time to be right," he said. "They might just be waiting for the wave to crest."
PayPal spokeswoman Jamie Patricio said Tuesday, "We believe that it's the early days for mobile payments, so we are continuing to look at ways that we can participate in the market."
Mary T. Monahan, an analyst and editor for Javelin Strategy and Research of Pleasanton, Calif., said that linking Obopay's service to customers' main bank accounts could increase spending. The prepaid model hampered purchasing, "almost like you're setting up a budget," she said.
Citigroup has been testing Obopay's service using prepaid accounts since last year and said in February that it would link the service to its regular accounts.
Michael Garelik, a vice president of growth ventures and innovation at Citi, said Obopay's new transfer capabilities are a less robust version of what it is developing with his company.
"What we're working on is almost like a next step," Mr. Garelik said. For example, Citi is setting up a direct link to Obopay to allow for real-time payments to Obopay users who are not Citi customers.
Mr. Garelik agreed that requiring people to use a prepaid account to fund mobile transfers is better suited to the unbanked than to people with bank accounts. "Integrating with their existing transactional account is really what" our customers want, he said.
Citi should begin tests of the transfer service this spring. Mr. Garelik would not say whether Citi customers would be required to pay transaction fees or whether the Obopay system would be marketed through Mobile Money Ventures LLC, the joint venture that Citi announced last week with the South Korean wireless carrier SK Telecom Co. Ltd. "Once we see how this pilot goes, the idea would be to make it available to more customers."
James Van Dyke, Javelin Strategy and Research's principal and founder, said that Obopay's new funding options seem to overlap with what it is developing with Citi but that the banking company's service will have some advantages, notably speed.
"One of the challenges you have with consumers is they're not aware today of how fast the money moves," he said, though a payment system "won't really move a market unless there's a true, urgent need" for real-time transfers.
